MACROECONOMIC ANALYSIS SERIES: BI Board of Governor Meeting, March 2020

Two times emergency rate cuts by the Fed in the last two weeks due to rapidly escalating Covid-19 pandemic have led the market into a large sell-off in risky assets. Fear of uncertainties among global investors triggered capital outflows from emerging economies. Indonesia’s portfolio has recorded an outflow of USD8.1 billion since the spread of the Covid-19 appeared in late January. To anticipate the economic disruption due to the outbreak in the short to medium term, central banks have put the efforts to maintain liquidity in their banking system along with cutting their policy rates. Bank Indonesia has also introduced stimulus packages, including providing some injections on forex and DNDF markets as well as lower bank’s FX reserve requirements. However, the flight to safety moves has weakened Rupiah to around IDR15,200 so far. The effect on the FX stability has also shown up in the depreciation of all emerging economies’ currency as the market’s extreme risk aversion has led into forex shortage, especially USD, across the world. The condition has been clearly dictating financial market’s trajectory into a bleak area.

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